FNB’s latest retail sales data for April paints a bleak picture of a declining trend in consumer purchasing power having knock-on effects on the retail property market.

According to John Loos, the FNB’s Property Strategist, retail sales data from Statistics South Africa showed yet another month of year-on-year decline in real inflation-adjusted terms.

“Actual retail sales value for April rose by 6.5% year-on-year, but when adjusted for high retail price inflation into ‘real’ terms, sales declined by -1.6% year-on-year, following on a revised -1.5% year-on-year decline in March, the 5th consecutive monthly year-on-year in real retail sales,” said Loos.

A significant increase in retail price inflation from 3.8% in March 2022 to 8.5% in March 2023 and then 8.% in April is a key cause of weak retail sales.

Loos added that the underlying economic challenges and headwinds associated with an overall economic growth slowdown and heightened rolling blackouts.

“While interest rate hikes have contributed to a slower economy, which slows total household income growth, they also contribute directly to a consumer purchasing power constraint because the increased cost of servicing debt means less disposable income available for cash purchase of consumer goods and services,” said Loos.

The property strategist said that the decline in real retail sales is only the tip of the iceberg for the list of negatives for the retail property sector.

Rising electricity costs are also having to be absorbed by tenants and landlords.

“Not only are electricity tariff hikes continuing at above general inflation rates, but the erratic power supply necessitates costly power alternatives to keep stores running, and the high costs of diesel for generators have been widely reported by food and beverage retailers especially,” said FNB.

The cumulative total of 475 basis points worth of interest rate hiking to date has also exerted immense pressure on landlords, tenants and consumers alike, it added. The problems of today also add to those of the pandemic, which set the retail industry back heavily.

“Since Covid-19 lockdowns commenced, credit bureau TPN reported retail landlords as having the lowest percentage of tenants in good standing with their rental payments when compared with the Office and Industrial Property Sectors,” reported FNB.

By early 2022, TPN noted that only 62% of retail tenants were in good standing, with a further decline following a partial post-lockdown recovery. FNB said that this indicates significant financial strain on retail property tenants, compounded by declining real retail sales and higher interest rates.

FNB’s Property Broker Survey also started to point to a weakening retail property market, with vacancy rates increasing one more and rental growth slowing.

“While MSCI data had reported some decline in the elevated national retail property vacancy rate in 2021 and 2022, recording 4.7% in 2022 (down from a 5.7% multi-year high in 2020), we expect a renewed rise in the national retail vacancy rate in 2023 as tenant incomes come under greater pressure and financial pressures escalate,” FNB said.

Source: businesstech.co.za